A federal judge in San Francisco on Tuesday said he was "strongly inclined" to approve a record-setting $10.033 billion proposed buyback and compensation offer from Volkswagen AG (VOWG_p.DE) for 475,000 owners of polluting 2.0-liter diesel vehicles.U.S. District Judge Charles Breyer said he will issue a final decision in the matter, stemming from Volkswagen's use of illegal software to defeat U.S. emissions testing, by Oct. 25.Owners, lawyers and others appeared before Breyer during a hearing raising arguments about why they think Volkswagen has failed to offer enough money for buybacks or refunding for other out-of-pocket costs like extended warranties, maintenance and government licensing fees.Breyer said he would consider the objections before deciding whether to recommend any changes, but added that it was "imperative" to act quickly.VW has agreed to spend up to $16.7 billion to address its so-called U.S. "Dieselgate" costs.Elizabeth Cabraser, lead counsel for the owners, said that while the buyback settlement was not perfect, it represents the best efforts of the government, Volkswagen, court and plaintiffs to reach a settlement that is "fair, reasonable and adequate."

Volkswagen lawyer Robert Giuffra defended the settlement, saying the goal was a deal that was "efficient and made sense."Breyer also on Tuesday granted preliminary approval during the three-hour hearing to a $1.21 billion settlement with VW's U.S. brand dealers.Jeannine Ginivan, a VW spokeswoman, said it welcomed Breyer's "positive comments" at the hearing. "We thank our customers for their continued patience as the approval process moves forward," she said.The German automaker has hired 900 people to handle the buybacks and will have a dedicated person in each dealership to oversee the repurchases that could begin next month if the judge approves the settlement. Volkswagen is also offering $5,100 to $10,000 in compensation in addition to the repurchase price.

Volkswagen may also offer 2.0-liter vehicle fixes if regulators approve. Under a timetable announced this summer, regulators could approve a fix for some 2015 VW diesel vehicles as early as next month but talks are still ongoing.About 3,200 of the owners have opted out of the settlement, while nearly 340,000 have registered to take part.Volkswagen still faces billions of dollars in potential fines from the U.S. Justice Department due to a criminal probe into VW's cheating scandal.

VW and U.S. regulators are in separate intense discussions over whether the automaker should agree to buy back 85,000 larger 3.0-liter Porsche, Audi and VW vehicles that also exceeded U.S. emission standards, and whether it should offer additional compensation to those owners. Breyer set a Nov. 3 hearing on the issue.In addition to other settlement costs, VW will pay more than $600 million to 44 U.S. states, spend $2 billion on zero-emission vehicle promotion and infrastructure, and another $2.7 billion to offset diesel pollution. Breyer must still approve those settlements.VW in September 2015 admitted using sophisticated secret software in its cars to cheat exhaust emissions tests, with millions of vehicles worldwide affected. The cheating allowed VW's U.S. vehicles sold since 2009 to emit up to 40 times legally allowable pollution levels. (Reporting by David Shepardson; Editing by Tom Brown)

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